Renting vs. buying

Friday

Mar 30, 2012 at 12:01 AMMar 30, 2012 at 6:40 PM

One of the first questions new home buyers face is whether buying or renting is best. Some people will tell you that it’s clear cut: Your rent money is going down the drain, while you can pay close to the same for a house payment and actually make your money go toward something (equity or value in the home).

Shelly O'Hara/Homefinder.com%%GateHouse News Service

One of the first questions new home buyers face is whether buying or renting is best. Some people will tell you that it’s clear cut: Your rent money is going down the drain, while you can pay close to the same for a house payment and actually make your money go toward something (equity or value in the home).

While cost of renting vs. buying is a definite consideration, you should consider other factors as well. Let’s look at some instances where renting makes sense.

First, you should consider whether you can afford the costs of homeownership. Your monthly loan payment is just one bill. You also have to pay for home insurance, mortgage insurance in some cases and taxes. All of these make up your monthly payment. You also need money for a down payment.

If your rental home or apartment needs maintenance, you are probably not responsible. Instead, you call on your landlord for upkeep and repairs. Some rentals also include utilities. When you own a home, you are responsible for maintenance and repairs. Also, you pay for the phone, cable, power, gas, water and other utilities.

Second, you should consider your situation. For example, renting might make sense if:

• You are moving to a new city, and you are not sure what neighborhood or area of town you want to live in. You may rent to get a feel for the city, then purchase a home after you are more familiar with it.

• If mortgage interest rates are high, you may not be able to afford a home, or the homes you qualify for may not be to your liking. In this case, you may consider waiting until the rates are more favorable.

• You are in a transition — looking for a new job, getting married, or getting a divorce, for instance — and you don’t want to commit to a home. If you will only be living in the home for a short while, you won’t recoup the costs of buying and then selling that home. Financially, renting might be the better option.

• In a down, or buyers market, there is a surplus of homes with very few buyers. In the past few years, the economic crisis has frozen the housing market, causing prices to drop around the country. Buying a home in a down market is an educated gamble. If you wait too long, the market will recover, and prices will go up. If you buy too soon, in the short term, you might have overpaid for your home.

Home ownership provides several advantages, including:

Tax breaks. When you own a home, you can take several deductions on your income tax. These deductions vary depending on your situation, but often you can write off all or part of the mortgage interest, real estate taxes paid, costs associated when you buy the home (such as interest points paid) and possibly other costs. If you work from your home, you can also write off a portion of other home costs such as utilities. It’s best to check with your accountant for a clear understanding of what you can and cannot deduct on your taxes, especially for home offices.

Equity. When you purchase a home, you usually accrue monetary value in the home. At the start, most of your payments go toward interest, but some go toward the actual principal (the home). The longer you live in the home, the more equity or value you accrue. While not true in all cases, many times home values increase. That means when you sell your home, you often make a profit from the equity you have built up. You can also borrow against the equity in your home with a home equity loan. You might, for instance, use your home equity loan to remodel your kitchen.

Privacy. Depending on the home type, you may have more privacy in a home. You can’t pick your neighbors, but at least you don’t share a wall or ceiling and floor with them. Of course, this isn’t true if you rent a single-family home (where you may have a yard and/or fencing) or purchase a condo (where you might share walls, ceilings and floors).

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